Immediate annuities can have an extra
benefit for the community spouse of an individual who needs long-term
care. For purposes of Medicaid
eligibility, a married couple’s countable resources are pooled and
excess resources are at risk. However,
the income of the community spouse is protected. A community spouse can
retain his or her income without affecting the Medicaid eligibility of the
institutionalized spouse.
An immediate annuity converts a cash
sum into a guaranteed stream of payments.
Such payments have traditionally been treated as income under
Medicaid law. As a result, the
purchase of an immediate annuity can convert an otherwise countable
resource (cash) into a non-countable stream of payments for a community
spouse.
But what if there were a potential
buyer for the stream of payments being received by the community spouse?
Can a state Medicaid agency force a community spouse to turn the
promise of future income payments into a countable resource?
When Robert James entered the nursing
home, his wife, Josephine, had more than her allowed community spouse
resource allowance. To spend
down to the eligibility point, Mrs. James purchased an actuarially sound
immediate annuity. The annuity was irrevocable, non-assignable and had no
cash value.
When Mr. James thereafter applied for
Medicaid benefits, his application was denied on the basis that the
annuity was countable and the couple still had excess resources.
Mr. James, represented by attorneys Matthew
Parker and Kevin Grebas,
of Marshall, Parker & Associates, filed an action in Federal Court
which alleged that the denial issued by the Pennsylvania Department of
Public Welfare (DPW) was in violation of federal Medicaid law.
In support of its denial of benefits,
DPW took the position that the annuity was a countable resource because
Mrs. James could sell the future payment stream of the annuity. It offered
an affidavit from an officer of J.G. Wentworth Company stating that
Wentworth would buy the community spouse’s rights to the annuity’s
income payments. Thus, argued
DPW, the annuity payments constituted a countable resource.
On November 20th, the
Federal District Court
for the Middle District of Pennsylvania rejected DPW’s arguments and
permanently enjoined it from denying Medicaid benefits to Mr. James.
Judge Caputo explained the Court’s ruling as follows:
Defendant [DPW]
essentially argues that, even if the income stream itself cannot be
considered for purposes of determining Medicaid eligibility, the market
value of that income stream should be a countable resource to preclude
eligibility. Such a rule would completely undermine federal law, which
excludes income of the community spouse from factoring into the
institutionalized spouse’s Medicaid eligibility. Indeed, a holding that
the market value of an income stream derived from an irrevocable
actuarially sound annuity is a countable resource would effectively
contravene the MCCA, which provides that “no income of the community
spouse shall be deemed available to the institutionalized spouse.” 42
U.S.C. § 1396r-5(b)(1). To be sure, Defendant’s argument blurs the
distinction drawn by the MCCA between assets and income.
Rather, so long as the
principal or corpus of an irrevocable annuity or trust cannot be reached
by the applicant or spouse, the income derived from such an asset cannot
be counted as a resource for Medicaid purposes, notwithstanding that
income stream’s market value in the eyes of a third party.
Pennsylvania
and other State Medicaid authorities tend to see the ability of a
community spouse to protect his or her financial security through the
purchase of a Medicaid annuity as a loophole in federal Medicaid law. If
so, it is a loophole that Congress has continually refused to close.
A cynic might suggest that the
Congressional attitude towards Medicaid annuities is rooted more in the
power of the insurance lobby in
Washington
, than in concern for the financial plight of middle class married
seniors. Whatever its
motivation, Congress has continued the special treatment of annuities in
the recently enacted Deficit Reduction Act.
It appears that individuals and couples facing devastating nursing
home costs can continue to plan through the use of properly structured
immediate annuities.
The ruling in the James case is
significant for couples with a desire to protect a community spouse from
financial impoverishment due to nursing home costs.
Robert
A. James v. Estelle B. Richman, United States District Court for the
Middle District of Pennsylvania, Civil Action No. 3 :05-CV-2647
(November 21, 2006). A copy of
the Court’s memorandum and order is available online at www.paannuity.com.
Attorney Marshall can be contacted at webmail@paelderlaw.com
or at 1-800-401-4552
